Response to “Re-Examining the Impact of Mandatory IFRS Adoption on IPO Underpricing” by Byard, Darrough, and Suh (2021)

Abstract

Hong, Hung, and Lobo (2014, HHL) document a decrease in IPO underpricing and an increase in the relative proceeds from foreign markets following the 2005 mandatory IFRS adoption. In a study that re-examines the impact of mandatory IFRS adoption on IPO underpricing, Byard, Darrough, and Suh (2021, BDS) assert that IFRS adoption is not associated with IPO underpricing. However, we find that BDS incorrectly claim that they obtain similar results in their replication of HHL. Whereas HHL document a 38-82% reduction in IPO underpricing following IFRS adoption, BDS’s “replication” shows a 345-927% reduction, which casts serious doubt on the validity of their analysis. To address the concern that the IFRS mandate applies only to firms trading on EU-regulated markets, not exchange-regulated markets, we perform additional tests using a new dataset from the European Securities and Markets Authority. We find that HHL’s results are generally robust to excluding IPOs registered in exchange-regulated markets. Finally, we contend that BDS mischaracterize measurement errors in the IFRS literature, which arise from data limitations, as data errors. Our reply highlights the importance of fair representation of prior literature.

Keywords: Initial public offerings, International Financial Reporting Standards

JEL Classification: G41, G48